Home loans are getting more expensive as banks jack up mortgage rates again to as high as 2.05 percent, the second increase in as many months, in line with sharply higher interest rates.

This could dent some of the enthusiasm in the buoyant property market. One banker also warned that rising interest rates, coupled with declining rents and increasing vacancies raises the risk of defaults in investment properties as borrowers may not be able to cover the higher servicing costs.

Since the start of 2018, banks have hiked interest rates for both fixed and floating home loan packages by 10 to 30 basis points.

DBS Bank is now charging 1.95 percent a year for each of the three years for its 3-year fixed rate package. UOB has increased its 3-year fixed rate package to 2.05 percent a year for each of the three years.

OCBC Bank has raised its 2-year fixed rate package to 1.85 percent from 1.75 percent a year for each of the two years. The third-year rate is 1.90 percent which is made up of the bank’s home rate – currently at 1 percent – plus 0.90 percent.

The key 3-month Sibor or Singapore interbank offered rate surged towards the end of December to a high of 1.5 percent on Jan 4, 2018; it had been range-bound for much of the second half of 2017 at around 1-1.1 percent.

Used to price home loans, the 3-month Sibor has since eased to 1.3 percent on Jan 12, 2018.

With the hikes from the US Fed Fund Rate in 2017 and the expectation of further hikes into 2018, market interest rates have been rising, said a DBS spokesman.

“This has translated to an increase in mortgage loan rates,” he said.

It wasn’t so long ago that both DBS and UOB were charging 1.85 percent a year for each of the three years of their 3-year fixed rate packages in end-November 2017. And two months before that, in September 2017, their 3-year fixed rate packages stood at 1.68 percent per year for each of the three years.

For every 10 basis points increase on a S$100,000 loan over 25 years, the monthly instalment goes up by S$4.80. So a 30 basis points increase for a S$1 million loan means an extra S$144 every month.

Floating rate loans are more popular among home buyers because fixed-rate loans charge a premium of 20-30 basis points, said a banker.

Demand for fixed-rate loans remains stable, the banker said. For borrowers who take fixed rate loans, the preference is for the 3-year fixed package as they want longer-term certainty said the banker, whose bank sells both 2- and 3-year fixed rate deals.

Rising interest rates may skim some of the froth off the buoyant property market which has seen sales rebound sharply last year.

Pent-up demand for residential properties pushed total private home transactions to about 23,113 in the 11 months of 2017, compared to 16,378 for the whole of 2016.

Developers racked up 10,247 private home sales, excluding executive condominiums, in the first 11 months of 2017, surpassing the 7,972 units sold for the whole of 2016 and a yearly average of 7,576 units from 2014 to 2016.

Bankers caution buyers to assess the impact of higher rates before they leap, especially if they are looking at investment properties.

Property prices are affected by various factors, one of which will be mortgage rates, said Vasu Menon, OCBC Bank vice-president and senior investment strategist.

“Rising interest rates may curb the rise in property prices here, but it may not be enough to hurt property prices too badly on its own – especially if there are other positive drivers like a strong economy, a healthy job market and good wage growth,” he said.

Given the current weak rental market, a rising interest rate raises the burden of servicing mortgages and reduces the appeal of investment properties, said Mr Menon.

“The ability to service the mortgage on an investment property depends on how easily the property can be rented out and the state of the rental market, which seems weak at the moment,” he said.

Rents of private non-landed homes fell 0.5 percent last year, moderating from a 5.9 per cent drop in 2016, according to flash estimates from SRX Property.

Unless a property owner can rent out his property easily, he may either end up owning a property that is vacant for long periods or has to slash rentals to secure a tenant, said Mr Menon.

“A combination of rising interest rates, lower rentals and prospects of a longer vacancy period, raises the risk of loan defaults among individuals that have investment properties.”

Despite an increase in leasing volume in Singapore, the CBRE reported a decline in the average condominium rental rates during the first quarter of 2015. Lease commencements have grown by 3.1 percent quarter-on-quarter posting 15,229. It marks a 13.5 percent increase as compared to the same period in the previous year.

The increase in leasing volume is attributed to the migration of tenants from HDB flats or older developments into newly opened condominiums offered at lower rents.

In addition, new permanent residents could have also added to this number as they leased homes while waiting to complete the compulsory three years prior to purchasing resale HDB flats.

The surge in rental volume did not propel the rents as it dropped across all regions. The average rental rate for the Core Central Region (CCR) has fell tremendously to 1.9 percent quarter-on-quarter, similarly the Outside Central Region (OCR) saw a decline of 1.8 percent. A 1.6 percent was posted by the Rest of Central Region (RCR), the smallest drop so far.

According to Joseph Tan, executive director of residential at CBRE, the steep decline in both CCR and OCR could be attributed to a number of factors including a higher supply of condominium units as well as a decrease in the liquidity of expats in the CCR. The surplus of newer units offered at lower rates definitely had an impact on the running rates.

A record number of new rental units, 2,976 new private homes, were built during Q1 2015 in OCR, which included 501 units at Hedges Park and 337 units at Woodhaven.

Joseph Tan noted that majority of these units were purchased not for occupation by owners but as investment. Given the sluggish market, owners are more inclined at securing tenants at lower rental rates rather than having no occupants.

The drastic drop in rental rates have propelled occupancy rate to 92.8 percent, while keeping number of vacant units to a low 7.2 percent.

CBRE further reported that luxury properties saw rents decline to $ 4.95 psf per month or down by two percent year-on-year. Similarly, prime properties dipped to $4.55 psf per month or four percent year-on-year. Rents for other properties likewise dropped to $3.15 psf per month or six percent year-on-year.

Given the current surplus of properties, real estate firms can expect a drop of five to 10 percent in the leasing volume this year, and a drop of five to seven percent on overall rents.

By the end of this year, the CBRE expects addition 22,000 new units are ready for occupancy – up by 10.4 percent from 19,921 the previous year.

The three-month Singapore interbank offered rate (SIBOR) has spiked to an unprecedented rate, well past 0.9 per cent this week – last happened in 2008.

SIBOR – the rate that is indicative of the cost of funds – has a huge impact on local real estate and loans market. Most housing loans are dependent on the three-month SIBOR.

What does it mean to home owners like you?

In plain language, a spike in the three-month SIBOR could mean homeowners paying more on their monthly housing loan payment. For instance, if your current housing loan is S$500,000 with 20 years remaining, the interest rate could increase to 2 per cent or $2,770.

With this development, a possible option that homeowners may consider is refinancing. Unfortunately, for homeowners tied down on a loan’s lock-in period, the increase in SIBOR means higher monthly payments.

SINGAPORE: Homeowners servicing mortgages will need to tighten their purse strings further: The three-month Singapore interbank offered rate (SIBOR) on Wednesday (Mar 11) charged past 0.9 per cent — a level not seen since 2008 — amid widespread expectations that the United States Federal Reserve will raise benchmark borrowing costs by mid-year.

The local interest rate, widely used to price home loans here, closed at 0.87943 per cent Wednesday, figures published on the Association of Banks in Singapore website showed. SIBOR continued to rise on Thursday to above 0.9 per cent, banking sources said, doubling the level seen at the beginning of this year.

Analysts whom TODAY spoke to said SIBOR’s climb followed the weakening of the Singapore dollar against the greenback in January, but took on added momentum after a very strong February job market in the US raised the likelihood that the Fed will normalise interest rates come June.

Following the US job report on Friday — showing the world’s biggest economy created 295,000 net new jobs last month to drive the unemployment rate to a seven-year low of 5.5 per cent — the US dollar rose to its highest versus the Singapore dollar since 2010.

“The rise in SIBOR has a lot to do with what we saw last Friday in the US, which caused the US dollar to move to a level we have not seen in a while. For a short time it touched S$1.39, which is very close to many people’s year-end forecast of S$1.40,” said UOB economist Francis Tan.

The other mortgage-pricing benchmark, the Singapore Swap Offer Rate (SOR), which is even more dependent on the US dollar-Singapore dollar exchange rate, soared above the 1 per cent level on Thursday, the highest since 2009.

The Monetary Authority of Singapore’s (MAS) surprise move in January to ease policy ahead of its scheduled April meeting had given rise to greater expectations of a weakening local currency, analysts said.

“I think there is rising expectations for the exchange rate to depreciate, not necessarily against the US dollar but also against the basket of currencies that the Singapore dollar is weighed against. That will put some upward pressure on interest rates,” said Credit Suisse economist Michael Wan.

“What this means is mortgage rates will rise, so households that have over-leveraged over the past years will be hit quite a bit and there may be some downward pressure on consumption spending. If domestic demand disappoints, it leaves more of the burden on external demand, or global growth, to drive the economy,” he added.

The recent rise in domestic interest rates have led to some economists re-looking their exchange rate projections for the year, but they said MAS’ policy decision come April will very much determine how things will pan out.

UOB’s Mr Tan said another easing by the central bank could push the US dollar to S$1.44, which will see the three-month SIBOR ending the year at around 1.3 per cent, up from his previous forecast of 1 per cent.